Imagine both you and your customer are in the midst of a dispute. It could be contractual in nature, for instance the customer may not think you satisfied the terms and conditions for a transaction. Alternatively, imagine a warranty dispute where your company disagrees with how your customer expects a problem to be corrected. Or disputes if there is a problem, at all.
“Compromise” is usually the name of this game. Or “lawsuit” when compromise fails. You would normally expect at least one opportunity to sit down across the table from the other party, hash out who is responsible for what, and have the hope of eventually reaching some kind of accommodation.
Unless your customer is the government.
Holding no cards
While doing work for the government can be lucrative, it also comes with heightened risks. When something goes wrong, it is my experience that the private company is in a very disadvantageous position. Government has plenty to threaten you with beyond a lawsuit: debarment, banning, special laws just for government, and all sorts of administrative hassles (Is all of your regulatory compliance perfect? Are your licenses pristine? How would you like a surprise visit from OSHA? Or the EPA? Or the IRS?).
During various points in my career, I’ve seen most of these tactics employed by government bulldoze private companies and get what they want.
A number of years ago, my company provided steel structures to a highway authority in a distant state. Despite the fact this governmental authority specified the design of the product, when an unusual wind event caused some of them to break, the organization came back to us for free repairs. Although we proved beyond a shadow of a doubt that the problem was design related – not manufacturing driven – we still ended up providing a “boatload” of money to the highway authority to replace the structures.
That example was actually one of the easier ones to get resolved – the government was willing to compromise. That hasn’t always been the case.
The best approach to handling these types of disputes, in my experience, is to give in early to whatever demands the government may levy against you – no matter how unreasonable it may seem in the beginning. In the vast majority of cases the government will get what they want anyway, and you’ll save yourself a lot of time, expense, and – most importantly – ill will.
In what was perhaps the singularly most frustrating experience of my career, a company my employer acquired (and which I was then managing) was threatened by a state attorney. The state will remain nameless, as I still have no desire to inadvertently pick a fight with them.
The acquired company had a minor product line – highway sign breakaway bases – which it immediately stopped making when we purchased them. The reason for this was a letter received soon after the deal from a competitor claiming patent infringement. We wanted no part of that or the downstream problems. The line was simply too inconsequential for us to continue selling with such a dispute hanging over our heads. The former owner settled with the competitor, and for a year we went on our merry way figuring everything was okay.
A year later, a state attorney sent us a letter telling us he was beginning debarment proceedings against the acquired company for selling “counterfeit” breakaway bases. The manufacturing quality or effectiveness of the design was never at issue. The question revolved around whether the company was authorized to make the product, and my assessment was that it wasn’t clear. I wasn’t worried, though. I had an ace up my sleeve. We’d purchased assets rather than the ongoing business (and its liabilities) when the deal was done, which should have gotten us off the hook. I attempted to direct the state attorney to the former owner. We, in fact, had never sold a single one of these things, so I was sure we were in the clear.
This state had an untested law that (apparently) allowed state government to hold us responsible for the problem. Still, I balked. Maybe we should be the test case to determine if the law was constitutional? It sounded like an expensive idea, but so did the proposed settlement by the state. Then the state attorney ratcheted up the stakes by threatening to debar our entire company!
That got us into settlement talks, but unfortunately we had absolutely no leverage. The state eventually forced us to hire someone to inspect every breakaway base in the entire state, and replace all those supplied by the company’s former owner. The price tag – around $2M.
Then, to add insult to injury, the state attorney ordered the state’s quality inspector to nitpick every detail of our regular products. It caused massive cost overruns as we scrambled to “repair” things that weren’t defective in the first place. It also caused us to be late on deliveries, which resulted in general contractors missing performance bonuses. O course, they assessed the costs of those missed bonuses to us. Final cost? At least another million.
Ultimately, the business was damaged so badly by this entire episode, that we were forced to close it.
In retrospect, we would have been much better off just dropping to our knees and begging for mercy – undoubtedly my early reluctance to accept responsibility and do whatever the state wanted led to the vindictiveness that wrecked the business.
When facing a dispute with the government, figure you’re going to lose. Usually, it is better to accommodate rather than fight. If you do elect to fight, just be prepare to experience the maximum conceivable loss from the process – in my experience, you may very well be faced with exactly that before the situation resolves. 32.6
Other Recent Posts:
My Linkedin profile is open for your connection. Click here and request to connect. www.linkedin.com/in/tspears/
If you are intrigued by the ideas presented in my blog posts, check out some of my other writing.
Non-Fiction: NAVIGATING CORPORATE POLITICS
To the right is the cover for HEIR APPARENT. Someone is killing corporate leaders in Kansas City. But who? The police and FBI pursue a "serial killer" theory, leaving Joel Smith and Evangelina Sikes to examine other motives. As the pair zero in on the perpetrator, they put their own lives at risk. There are multiple suspects and enough clues for the reader to identify the killer in this classic whodunnit set in a corporate crucible.
My novels are based on extensions of 27 years of personal experience as a senior manager in public corporations.